Vectren scrutinized on coal buys

IURC to review procurement plans

As a result of a new Indiana Utility Regulatory Commission order, Vectren is now required to submit its coal purchasing plans to an extra level of scrutiny.

Under the terms of the order, once a year Vectren must provide "a detailed discussion of its coal procurement plan" for review by both the IURC and the Office of Utility Consumer Counselor. The OUCC represents the interests of Indiana utility customers in regulatory cases.

The new order, which was approved March 7, stems from Vectren's electric utility rate case last year.

During that rate case it was revealed that in 2008, Vectren's various coal contracts expired at the same time, forcing the utility to replace its coal supply at a time when coal prices were historically high. Most of that coal was purchased from one of its affiliate companies, Vectren Fuels.

So the IURC created what's called a "subdocket" to explore the utility company's coal procurement procedures as a separate matter.

Vectren spokeswoman Chase Kelley said the situation in 2008 came about when the utility company changed the way it purchased its coal.

In the past, Vectren's coal purchasing contracts were based on the costs of producing the coal, Kelley said, which is a model based on buying large quantities of coal at once. Vectren switched to using contracts based on market prices for coal, and around the same time coal prices started to become more volatile.

Kelley said Vectren also has instituted a "portfolio" approach to its coal purchasing, meaning that it is buying coal in smaller quantities under different contracts as a way to hedge against rising coal prices.

Last spring Vectren went through a formal bidding process and secured contracts for lower coal costs. This coal, the utility said, will start being used at Vectren's power plants by late this year.

Through an accounting maneuver, the utility has already started to pass along the savings associated with the lower priced coal — a move which lowered the typical residential consumer's monthly bill by $6 to $8 starting last month, Kelley said. The existing 2012 coal costs that are above the new lower prices will be deferred and recovered without interest over a six-year period beginning in 2014.

In its recent order, the IURC noted it was "cautiously encouraged" by the changes Vectren had made to its procurement procedures, but it also believed "sustained oversight" was required in the matter.

Commissioners Larry Landis, David Ziegner and Chairman James Atterholt concurred with the order. Commissioner Kari Bennett was absent from the proceedings, and Commissioner Carolene Mays did not participate.

Both Vectren and the OUCC said they were satisfied with the outcome of the matter.

"Our coal purchasing has always been a very transparent and open process," Kelley said.

"We welcome that oversight. It's not a concern for us."

Anthony Swinger, spokesman for the OUCC, said his agency was "very pleased" with the order.

"It recognizes a number of concerns that we raised about Vectren's coal purchasing practices. It also puts safeguards in place going forward. ... We think those are very positive steps," Swinger said.